Small shops and businesses will be let off from paying business rates until
April 2013, extending their holiday for a further six months.

George Osborne announced that businesses with a rateable value of between £6,000 and £12,000 would see their rates holiday stretched from October 2012 to April 2013. A third of all shops would benefit, he said.

Larger businesses will be able to defer 60pc of the rate increase, due to come into effect in April 2012, by spreading it across the following two years.

Shopkeepers had argued they were due to be hit particularly hard by the jump in business rates. High street shops pay 28pc of all business rates, even though they are responsible for just 5pc of the country's GDP. The increase alone was calculated to hit the retail sector by £350m next year, at a time when many shops were struggling to attract customers.

The increase in business rates, paid by all non-domestic properties, is calculated based on the previous September's Retail Prices Index, which this year hit 5.6pc. This is due to come into force in April next year.

James Lowman, the chief executive of the Association of Convenience Stores, which represents small shops, said only the smallest of shops, "your local village store or a shop in a pretty remote location" would enjoy a complete rates holiday. "It's targeted at the smallest businesses."

Businesses with a rateable value of £6,000 – which typically pay annual rates of £2,400 – will receive a full holiday, with the relief tapering to 50pc for those with a business that has a rateable value of £12,000. The measure will cost the Treasury £210m in 2012-13.

Mr Lowman added that big shops would welcome the right to defer the majority of the rate increase. "This will help with cash flow. It is cash flow that often kills a business."

However, Jerry Schurder at Gerald Eve calculated that just 6pc of all business will take up the option of deferring. "The Chancellor seems to be pinning his hopes on businesses not wishing to put themselves through the hurdles of the scheme given the debacles of previous experiences," he said.